Correlation Between Altria and Philip Morris
Can any of the company-specific risk be diversified away by investing in both Altria and Philip Morris at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Altria and Philip Morris into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Altria Group and Philip Morris International, you can compare the effects of market volatilities on Altria and Philip Morris and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Altria with a short position of Philip Morris. Check out your portfolio center. Please also check ongoing floating volatility patterns of Altria and Philip Morris.
Diversification Opportunities for Altria and Philip Morris
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Altria and Philip is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Altria Group and Philip Morris International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Philip Morris Intern and Altria is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Altria Group are associated (or correlated) with Philip Morris. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Philip Morris Intern has no effect on the direction of Altria i.e., Altria and Philip Morris go up and down completely randomly.
Pair Corralation between Altria and Philip Morris
Assuming the 90 days trading horizon Altria Group is expected to generate 1.0 times more return on investment than Philip Morris. However, Altria Group is 1.0 times less risky than Philip Morris. It trades about 0.07 of its potential returns per unit of risk. Philip Morris International is currently generating about 0.07 per unit of risk. If you would invest 3,688 in Altria Group on August 30, 2024 and sell it today you would earn a total of 1,792 from holding Altria Group or generate 48.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Altria Group vs. Philip Morris International
Performance |
| Timeline |
| Altria Group |
| Philip Morris Intern |
Altria and Philip Morris Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Altria and Philip Morris
The main advantage of trading using opposite Altria and Philip Morris positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Altria position performs unexpectedly, Philip Morris can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Philip Morris will offset losses from the drop in Philip Morris' long position.| Altria vs. British American Tobacco | Altria vs. JAPAN TOBACCO UNSPADR12 | Altria vs. Superior Plus Corp | Altria vs. NMI Holdings |
| Philip Morris vs. British American Tobacco | Philip Morris vs. JAPAN TOBACCO UNSPADR12 | Philip Morris vs. Superior Plus Corp | Philip Morris vs. NMI Holdings |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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